Global business insurer XL has cut a deal to buy Island-based rival firm Catlin in a $4.1 billion merger, it was announced today.

The new company — to be known as XL Catlin — will have total capital of $17 billion and around $10 billion of net premium, based on the values of both firms at the end of 2013.

The new combined business aims to save up to $200 million in costs — although XL CEO Mike McGavick said it was too early to say how many jobs could go.

Mr McGavick added: “We are delighted to announce this compelling combination which positions us strongly to provide more — and even better — answers for the world’s most complex risks while enhancing our opportunities to create value for shareholders and better serve clients and brokers.

“We believe the transaction will accelerate each company’s strategy and address the meaningful structural changes we see shaping the property and casualty sector.

“Specifically, the combination will add immediate scale in speciality insurance. It will create a more efficient and more capable global network by bringing our two infrastructures together and it creates a top ten reinsurer with expanded alternative capital capabilities.”

XL was founded in Bermuda in the 1980s and still maintains a major presence on the Island, although it now domiciled in Ireland.

The merger was signalled last month — and it is the first Bermuda mega-merger after analysts predicted that reinsurance firms would have to expand to survive threats ranging from the growth of third-party capital to lower interest rates squeezing investment income and a drop-off in premiums.

XL was also attracted by Catlin’s strong presence at Lloyd’s of London — an area seen as crucial to XL’s ambition to expand many of its lines of business.

Mr McGavick will continue as CEO and it likely Catlin founder and CEO Stephen Catlin will join the board as executive deputy chairman when the transaction closes this summer.

Mr Catlin, who founded the Bermuda-based firm that bears his name in the 1980s, said: “XL is a compelling partner for the Catlin business. Both businesses have been built on underwriting excellence and benefit from strong cultural capability,

“Together, the combined entity will be a market leading global speciality and property catastrophe insurer which will be far better positioned to respond to the changing dynamics that are impacting the broader insurance reinsurance markets.

“We expect the enlarged business to benefit from increased diversification, significant further economies of scale, strengthened franchises in each of its markets and an improved standing with intermediaries.”

Mr Catlin added: “As a result, XL Catlin will be better equipped to serve its clients across a range of distribution channels and geographies with an enhanced suite of capabilities and products.”

The transaction represents a premium of 23.5 per cent to Catlin’s closing share price on December 16 last year.

Mr McGavick said: “I’m especially pleased that Stephen Catlin will continue on with the combined company.

“With the combination of our talented teams, we expect to maintain strong financial fundamentals while generating attractive economics and long-term value for shareholders including double digit earnings per share and meaningful return on equity accretion.”